Jumbo-Loan Activity in the U.S. Continues to Rise

Demand for largest mortgages up 27%, report says

By Farran PowellOriginally published on August 07, 2015|Mansion Global|

The volume of all mortgage applications is surging with an increase in activity from a year ago, according to the Mortgage Bankers Association.

“This year there’s much more strength at the top end of the market,” said Michael Fratantoni, MBA’s chief economist on the association’s July 31st data. "For the last three years, the real story is growth at the high end of the market and weakness in the lower end of the market.”

MBA also found that overall mortgage credit availability increased in July with its index on mortgage credit availability rising by 2.9% last month, according to MBA’s note released Thursday.

Applications for jumbo loans greater than $417,000 rose more than 28% year-over-year in June 2015, with even stronger demand for mortgages of $729,000 and greater—those applications grew by 27% in the same period.

Demand for jumbo loans has coincided with the steady rise in U.S. homes prices over the last couple years, real estate economists say.

Around 20.1% of mortgages last year were jumbo loans—the largest share since 2000, according to Inside Mortgage Finance, which tracks data on jumbo loans. These loans represented 20.2% of the mortgage market during the first half of 2015.

Banks also handle jumbo mortgages differently. The majority of jumbo loans is processed through private banks, separate from security-backed mortgages like FHA or Fannie Mae, said Darius Mirshahzadeh, CEO of The Money Source Inc. and a mortgage lending industry expert.

Real-estate analysts expect the Federal Reserve to raise interest rates during its upcoming two-day meeting on Sept. 16 and 17. The Fed has clung to its benchmark rate near zero since December 2008 to boost investing, lending and spending.

Most analysts speculate that the Fed will hike its short-term interest rates in September if the economy continues to grow with strong job reports.

Fratantoni says if the Fed chooses to increase rates in September, it will most likely be a modest hike in short-term interest rates.

A slight bump in short-term interest rates to U.S. private banks will most likely be passed on to jumbo loan consumers, albeit a small base point percentage increase, The Money Source CEO said.

“They’re not just going to take that hit in their pocket book, particularly in the lending business, you pass the expenses on to the consumer,” Mirshahzadeh said.

Correction: The first name of Darius Mirshahzadeh, CEO of The Money Source Inc., was incorrectly given as Adam in a previous version of this article. (Aug. 18, 2015)